Alumnus Chris Larsen speaks to SF State College of Business students about potential of cryptocurrencies

Any list of the top news stories from 2017 will include an article about Bitcoin’s wild rise and fall. The currency’s value per unit soared from $900 in the beginning of the year to nearly $20,000 in December, according to digital currency news site CoinDesk. Just a few days later, the price dropped about 30 percent. Despite such wild swings, alumnus Chris Larsen (B.S. ’84), cofounder of enterprise blockchain company Ripple, predicts that new cryptocurrency technology will radically transform global business, and he said so in a recent classroom visit to his alma mater.

Larsen spoke to students during an April 9 event in Assistant Professor Shengle Lin’s “Alternative Investment” class. As Larsen sees it, the day-to-day trading of virtual currency isn’t as interesting as how blockchain technology is paving the way for something called “the internet of value”: a system of near-instantaneous exchange that would allow money to be sent online as quickly and easily as an email or a phone call.

“Currently, if you want to try to wire money from your bank to the U.K. it could take three or four days and it costs a fortune in fees,” he said. “The basic infrastructure to instantly send and receive money across borders is not there. That’s the big problem to solve.”

Cryptocurrencies opened the door to technology that could solve this problem. Cryptocurrencies exist on decentralized networks, also called ledger networks. These networks aren’t controlled by companies or governments, so instead of having a central bank processing and recording each transaction, every computer in the network records every transaction. The benefits of using cryptocurrencies are that they aren’t bound by exchange or interest rates and transaction fees and users have total control over their electronic funds.

Yet cryptocurrencies have limitations. Each of these ledger networks has a unique set of features, which makes it hard to apply on a global scale, Larsen adds.

“For example, China wants to control all capital leaving the country. You can never have a network that’s going to meet China’s needs with a set of features that disrespects that need,” he said.

And, Larsen notes, some cryptocurrencies are not scalable. Bitcoin can only process seven transactions per second, and it takes a large amount of energy to complete even a single transaction because every computer in the network processes each transaction. According to news reports, the Bitcoin network uses the same amount of energy annually as the nation of Denmark.

Larsen believes an open source network, similar to how IP addresses connect computers online, could do the same thing for money. “What we need is the Interledger Protocol [ILP], which is open source and decentralized and can communicate with different ledger networks,” Larsen said. ILP could be that glue that allows someone from the U.S. to instantly send $50 to the U.K., with no fees and no failure rates, he adds.

“We’re on the cusp of having this happen. ILP allows any ledger to talk to other ledgers and exchange value,” he said. “The second you get the transfer of value at zero-cost and it’s available for anyone to use, new business models that couldn’t have existed before can happen.”